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On August 24, 2017, President Trump issued a new Executive Order targeting the current Venezuela regime. The next day, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced the implementation of broad new "sectoral" sanctions applicable to the Government of Venezuela and Venezuelan state-owned entities, including state-owned oil producer Petroleos de Venezuela, S.A. (PdVSA). While the new Venezuelan sanctions fall well short of an embargo, and are patterned after the limited sectoral sanctions applicable to certain Russian entities, these developments represent a major change in US policy towards Venezuela and are likely to impact a broad range of international companies dealing in debt or other securities of Venezuelan state entities.

transactions related to, providing financing for, or otherwise dealing in new debt with a maturity of longer than 90 days and new equity issued by, on behalf of, or for the benefit of PdVSA, its property, or its interests in property;

transactions related to new debt with a maturity of longer than 30 days and new equity issued by, on behalf of, or for the benefit of any other segment of the Government of Venezuela, its property, or its interests in property;

purchasing (but not other type of transactions) any securities (including securities issued prior to the Executive Order's effective date) from the Government of Venezuela other than securities qualifying as new debt with a maturity of less than or equal to 90 days (for PdVSA) or 30 days (for the rest of the Government of Venezuela).

transactions involving bonds issued by the Government of Venezuela prior to the Executive Order's effective date, other than certain specifically-listed bonds which are exempted;

transactions involving dividend payments or other distributions of profits to the Government of Venezuela by any entity owned or controlled by the Government of Venezuela;

These sectoral sanctions do not add any persons to OFAC's Specially Designated Nationals ("SDNs") list. However, the sectoral sanctions apply to a broad range of Government of Venezuela entities, and follow the same "50 percent" rules applied by OFAC in other contexts, by including entities owned 50 percent or more, individually or in the aggregate, by the Government of Venezuela. The scope of Government of Venezuela also includes any person controlled by, or acting for or on behalf of, the Government of Venezuela. It is expected that OFAC will maintain a Venezuela-related sectoral sanctions identification list, but persons conducting related financing and capital market transactions with Venezuelan parties should conduct careful due diligence to understand these parties' ownership and connection in relation to the Venezuelan government, in addition to screening parties against the OFAC list.

OFAC has provided broad interpretations of the term "debt" and "equity" in line with the approach it has taken for the Russian sectoral sanctions. It has also taken a similar approach to rollover of existing debt as well as drawdowns and disbursements pursuant to existing long-term credit facilities – such transactions will be prohibited to the extent they result in the creation of new debt with a maturity of longer than 90 days (with respect to PdVSA) or longer than 30 days (with respect to the rest of the Government of Venezuela).

2. Exceptions and Winding-Down

On the same day the new sanctions were implemented, OFAC issued four general licenses to provide certain exceptions and a winding-down period. These general licenses carve out from the application of santions

certain bonds that are listed in General License 3; and

bonds issued by US person entities owned or controlled, directly or indirectly, by the Government of Venezuela (including but not limited to CITGO Holding, Inc. (CITGO)).

In addition, all transactions in which the only Government of Venezuela entities involved are CITGO and its subsidiaries are exempted, together with all financing and other dealings in new debt related to the exportation or reexportation of agricultural commodities, medicine, medical devices, components, or replacement parts for medical devices, to Venezuela, or to persons in third countries purchasing specifically for resale to Venezuela, provided that the exportation or reexportation is licensed or otherwise authorized by the Department of Commerce.

General License 1 provides a wind-down period with respect to pre-existing contracts and agreements. That general license provides 30 days for US persons to conduct all transactions and activities that are ordinarily incident and necessary to winding down such agreements. US persons should take advantage of this wind-down period and examine their existing contracts with Venezuelan parties to identify the best mechanism to achieve winding-down.

OFAC can also be approached for specific licenses to authorize transactions that are not otherwise covered in these general licenses.

3. Conclusions

The new sanctions concerning Venezuela tightened existing sanctions using the sectoral sanctions framework adopted for the Russian sanctions. They aim to curb the Government of Venezuela's financing schemes used to support the regime, without causing extensive market disruptions and complete economic shutdown for the country. However, in achieving this, the Venezuela sanctions regime becomes more complex and potentially poses a higher compliance burden. Companies having current dealing with Venezuela or planning to enter into the market are advised to navigate the new sanctions regime carefully, and take immediate steps to wind down transactions to the extent needed.

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